Viva Energy fuel plant blaze raises fuel security concerns but could have been worse
Images of thick smoke rising from the Geelong oil refinery are a sign of more than just a local emergency. Australia is dangerously close to the biggest energy shock in its history, and the blazes raise an urgent question: How bad will this be for the country’s already precarious fuel security situation?
Refineries are inherently volatile environments. These are large industrial centers that process highly flammable hydrocarbons under intense pressure. Fires are an ever-present occupational hazard, but the timing of this fire is uniquely concerning.
The facility on the Corio Bay coast, owned by fuel giant Viva Energy, is one of only two remaining local oil refineries after a decade-long exodus of other facilities; This leaves Australia with a limited ability to produce its own fuel and remains reliant on imports for 90 per cent of its needs, just as the war in the Middle East has choked off global supplies.
What is immediately clear is that the situation could be much more disastrous.
The fire has forced the Geelong refinery to temporarily reduce production of petrol, diesel and jet fuel to “minimum rates” – and that’s clearly bad news for a market operating on a knife edge.
Fuel companies and the Albanian government are already locked in a race against time as they try to boost domestic reserves, keep up with overwhelming demand from anxious motorists across the country, ensure adequate supplies flow to far-flung service stations and businesses, and avert the risk of worsening shortages in the coming months.
Analysts warn that for Australia, the refinery hit signals a deterioration in the national fuel security position and raises the possibility of moving to the next phase of the government’s fuel savings strategy, which could include diverting fuel to priority areas, encouraging voluntary measures such as carpooling or home working, and further releasing strategic reserves.
“Australia has the distinction of being one of the world’s most import-dependent countries for refined fuel products, while also holding some of the lowest strategic reserves among developed economies,” said Gero Farrugio, Rystad Energy’s head of Australia research. “You can be heavily dependent on imports or have minimal reserves, but you can’t be both.”
Internal reports from the refinery confirmed that two of the facility’s oil production units were affected by fire damage, which affected refining operations and will negatively impact overall production volumes.
As of Thursday morning, Viva Energy staff had not yet completed a full damage assessment.
But what is immediately clear is that the situation could be much more disastrous.
Since the war in Iran began on February 28, the refinery has been pushed to its absolute limit. Operating at maximum capacity and processing 120,000 barrels of crude oil per day, the facility reliably supplies enough gasoline, diesel and jet fuel to meet 50 per cent of Victoria’s demand and 10 per cent of Australia’s demand.
Fortunately, most of the plant continues to operate, and Viva Energy’s management is privately confident that it will have “options to revive production” once the extent of losses is known.
The region also has strong fuel import flows towards May and strong crude oil deliveries flows towards June.
“Obviously we lost a few units,” said a company source, who asked to remain anonymous while the incident is ongoing. “There will be some impacts. But we’re still running and we can still do our best.”
The impact of all this on prices will be negligible.
Although Australian oil prices have risen 30 percent since the start of the war and now average $2.24 for regular unleaded petrol, these increases are not due to any local fuel supply shortages; rather with rising global crude oil prices. So far, supplies in Australia have been stable and the industry remains optimistic until at least mid-year.
Fuel importers, including Viva, are diversifying their supply chains to source fuel from other parts of the world, while the Albanian government is in bilateral talks with its Asian neighbors to support future deliveries. Nor will the 10 per cent of national fuel typically supplied by Geelong disappear completely.
“The biggest unknown right now is how long this war will last,” said another fuel industry executive.
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Nick Toscano is a business correspondent for The Age and the Sydney Morning Herald.Connect with: X or email.
